HMRC clamps down on R&D Tax Credit sales and marketing

The problems of R&D Tax Credit fraud, error, and overclaiming are now well-known, as are some of HMRC’s strategies to combat these issues, such as its punitive enquiry campaign which is causing turmoil in the SME tech community.

Many of the current difficulties can be traced back to weak oversight of the R&D regime by HMRC over many years, a situation which led to many new advisory firms entering the R&D claims market. These firms often used industrial-scale marketing to target companies and persuade them to file claims regardless of eligibility.

What is less well-known is how HMRC is targeting certain R&D advisory firms, pushing them to either clean up their act or face being driven out of business.

As well as targeting less scrupulous advisors, it now appears that HMRC has set its sights on advisors who aggressively market R&D Tax Credits.

I can reveal that an HMRC campaign has begun that aims to stamp out aggressive R&D Tax Credit marketing and which could result in many advisors having to change their entire business models.

The problem of R&D Tax Credit marketing

The R&D Tax Credit claims industry has grown rapidly in recent years and by some estimates generates ￡1 billion per annum in advisor fees. Whilst this figure is unlikely to have been celebrated in Treasury circles, it encouraged many new firms to enter the advisor market, some of which brought their expertise of operating in high-pressure sales environments with them.

As a result, the number of R&D claims being filed skyrocketed, jumping from just over 50,000 in 2016-17 to nearly 90,000 in 2020-21.

It is however inconceivable that, after nearly two decades of operation, 40,000 extra qualifying companies belatedly realised that R&D Tax Credits were “not just for men in white lab coats” and that they should have been making claims all along.

As anyone who has been relentlessly targetted by R&D Tax Credit advisor cold calling, email spamming, and social media marketing can guess, much of the growth since 2017 is due to R&D advisors becoming more aggressive in their approach to generating new business rather than a sudden explosion in R&D taking place.

It is well-documented that many of these new claimants were not eligible for R&D Tax Credits - for example hundreds of companies in the care sector - and were encouraged to claim R&D by inexperienced, commission-driven salespeople with promises of “free money” and little risk to the claimant.

With R&D Tax Credit fraud and error costing the taxpayer an estimated ￡1.13 billion annually, it was inevitable that HMRC would attempt to curb the excesses of some R&D firms and try to get a grip on a scheme which HMRC chief Jim Harrah recently described as “a honeypot for people for whom it is not intended ”.

(For anyone interested in reading more about the dubious growth of the R&D Tax Credit claims industry, I suggest reading my 2022 article, "The Truth Behind the Growth of R&D Tax Credits ”).

HMRC’s “R&D Agent Compliance Management Team”

In an effort to clean up the R&D claims market, HMRC used a call with the R&D advisor community in December 2023 to announce the creation of an “R&D Agent Compliance Management (ACM) Team”.

This is where a specialist HMRC team would work with selected R&D advisors to:

• work collaboratively to address key risks present within their R&D claims
• outline how agents can improve their practices and in turn the quality of their claims moving forward
• to provide an insight into some of the additional information an agent can provide to support a claim to R&D tax relief

R&D agents that choose not to take part in the ACM process - or fail to complete it successfully - will have sanctions applied. These sanctions can include a refusal by HMRC to process R&D claims prepared by the advisor.

The first wave of these agent compliance calls was begun back in January 2024 but, understandably, practically no information has emerged regarding the detail of the discussions HMRC is having with the R&D advisors involved.

Is HMRC trying to “re-set” the R&D advisor market?

I have now spoken with one R&D advisor who has been through the ACM process.

They told me that, in addition to R&D claims process improvements, the HMRC team is attempting to tackle the issue of advisor marketing, including discussions designed to find out if an advisor is “aggressive” in its sales and marketing, as well as looking at their contractual engagement with clients.

The advisor was taken aback by the questioning. “It's almost like HMRC is saying they are going to start again and re-set how the R&D Tax Credit advisory market operates".

Questions being asked of the advisor included how many sales and business development people they employ, if their salespeople are knowledgeable about R&D Tax Credits, whether they engage in cold-calling, and what SEO they use.

Contractually, they wanted to know if their clients can withdraw from the R&D claim process and suggested that contracts must be “no obligation” and include a "cooling off period” so that companies aren’t forced to file a claim against their better judgment.

They also indicated that HMRC is actively monitoring R&D advisors’ social media accounts to look for content that might be misleading and give false promises of easy money.

I was told that the overall impression given is that HMRC wants to remove commission-based salespeople from the R&D advisory industry and have them replaced by a more expert approach using consultants with a deep knowledge of the R&D regime.

HMRC also appears to be concerned by the widespread use of SEO in the advisor market, and in particular by those firms that promote misleading information to attract clients.

Information provided by HMRC online has long been crowded out by R&D advisors marketing their services and giving their own firm’s (often incorrect) advice.

The sheer volume of advisors appearing in search results was neatly summarised in 2022 by a witness to the House of Lords Finance Bill Sub-Committee, Colin Hailey of the UK BioIndustry Association, who described the R&D Tax Credit advisory market as like “the Wild West” and complained that “if you Google ‘R&D Tax Credits’ you get 4 pages of R&D Tax Credit advisors before you get to anything from GOV.UK".

All of this contributes to a feeling that things have got out of control and have led to calls for the R&D advisor market to be regulated.

By attempting to drive outbound sales and SEO out of the R&D Tax Credit advisory industry, it looks like HMRC is signalling a major overhaul in how it wants the agent market to operate.

The writing on the wall

This has clearly been the direction of travel for some time.

In January, I wrote an article titled “How should R&D Tax Credit advisors market themselves in 2024? ”

One of my top tips to R&D advisors was to get rid of their Sales Development Representatives (SDRs).

As I warned at the time:

“Long gone are the days when inexperienced R&D salespeople could hang around their company’s stand at a trade show hoping that their dream customer would just happen to walk past and start a conversation or that a random cold call would magically find a company doing large amounts of R&D that by some miracle had never heard of R&D Tax Credits.

“There is no room for cold outbound prospecting by SDRs in today’s R&D Tax Credit environment. These roles are redundant. Not only are they wholly ineffective, they can also make you look like the type of rogue R&D agent that HMRC is accusing of encouraging ineligible companies to make R&D claims.

“Novice SDRs are incompatible with R&D Tax Credits. Salespeople should be expert consultants first and foremost”.

Is it possible that R&D advisors, who otherwise have rigorous R&D claim processes in place but have based their growth plans on teams of salespeople and significant investments in SEO, could find themselves being contacted by HMRC’s Agent Compliance Management Team?

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Article written by Rufus Meakin

Rufus Meakin helps companies prepare complex R&D Tax Credit claims where robust HMRC compliance is essential.

If you would like to discuss any aspect of your R&D Tax Credit claim then please feel free to call me on 0794 110 3285.